EUR/AUD Downtrend Continues as Interest Rate Differential Weighs

The EUR/AUD exchange rate has been trending downward on Friday, continuing its overall downtrend. The euro has weakened significantly against the Australian dollar, and this is a market that Christopher Lewis has been monitoring closely. In fact, he notes that the pair has bounced back nicely from a major support region around the 1.61 level over the past 48 hours.

This area of support extends down to the 1.60 level and is an important region in this market, going back several years. The ECB's decision to raise interest rates by 25 basis points yesterday has signaled further tightening, which should theoretically support the euro. However, Australia has a more robust rate backdrop, with its RBA cash rate currently at 4.35% following three hikes this year.

The interest rate differential between Australia and Europe is significant, with Australia's rate being approximately 185 basis points higher than Europe's. This continues to weigh on the bulls in this pair. Additionally, Australian 10-year government bonds have pushed above 5%, their highest level since 2011, which further supports the Aussie.

With these factors in play, it seems that the market is still testing the crucial 1.61 support level.